The graduate's guide to London: Budgeting

October 25, 2018

Author: Jessica Ching

Given that most graduate jobs in London pay at least £18,000 a year, the prospect of a job in the city offers the majority of graduates more financial freedom than they’ll have ever experienced before.

But as one of the most expensive cities in the world, your monthly paycheck can disappear all too quickly – especially when expenses in London tend to be significantly higher than in the rest of the UK.

In order to survive (and thrive!) in the city, budgeting is key. By taking the extra time to think about your spending in advance, you’ll be able to work out what you actually spend your money on, highlight anything that is unnecessary, and fashion a realistic plan that will enable you to make the most of living and working in London.

So if you’re considering graduate jobs in London, what are the different factors you’ll need to consider – and how can you make sure that you stick to your budget?

Renting in London

It should come as no surprise that rent in London will likely account for most of your expenses, particularly if you choose to live in Zones 1-3. Sharing a property with flat mates can help to make your rent cheaper, so if you don’t have a friend or a family member to live with it’s worthwhile using sites like Spareroom. Living in less well-known areas of London can also help to reduce your overall living costs.

When moving into a property in London, remember that the deposit will be a huge hit to your finances. Typically one to six weeks rent, plus agency fees (usually between £100-£200), a security deposit needs to be paid upfront, and therefore it’s worth thinking about saving for before you move to London.

National Insurance & Income Tax

After not paying it at university, many graduates forget to consider that they’ll have to pay National Insurance and Income Tax on a graduate salary - and therefore forget to factor these big expenses into their budget. Both National Insurance and income tax vary depending on your wage, and can be calculated using a tax calculator, like Money Saving Expert's.

Repaying student debts

Contrary to popular belief, your repayments won’t make a huge dent in your salary straight after graduation. In fact, you don’t have to start repaying until you are earning more than £25,000 per year.

Travel costs in London

Another huge expense to factor in is commuting – something that will vary hugely depending on how far you need to travel. If you are going to be commuting by bus, this will only cost you around £60 per month, whereas tube travel is significantly more expensive, with peak journeys costing between £2.40 and £5.10 per journey depending on which zones you’re in.

Monthly and quarterly bills

Broadband, water, gas, electricity and council tax are all important bills to factor in – though sometimes they are included in the price of a room in London. If they are not already included it’s worth shopping around to ensure that you are getting the best deal possible, because bills for the month can really add up.

Other expenses

Having deducted all the above expenses, you’ll have a set amount of money to spend on everything else – including your groceries, toiletries, and your social life. When constructing your budget, split this into essentials (food, cleaning products, toiletries and mobile phone bills) and non-essentials (alcohol, trips or outings, clothing, entertainment and so on).

This is the area where you can save the most money by making small lifestyle decisions such as buying own brand food, bringing your lunches into work, and being selective with the things you do (you might occasionally need to sacrifice a trip to the local pub on a Monday, so that you’ll have enough to go to that concert on Friday).

Saving some of your salary

Where possible, it’s always a good idea to set some money aside for a rainy day. The amount you will be able to save is very much dependent on your salary and expenses - but even if you can only afford a small amount, saving a little of your paycheck is a great habit to get into early in your career, and can make it easier to pay for big ticket expenses like holidays. And with 70% of students in their overdrafts after university, regularly putting money aside can be the best way of getting out of it as soon as possible.

Living and working in one of the world’s priciest cities can be tricky on a graduate salary – but with a clear strategy in place it’s more than possible to make the most of London, whatever your budget.